Platinum rose 3 percent as supply worries in South Africa prompted investors to buy the metal. Labor unrest forced Lonmin , one of the world's top platinum producers, to cease production. South Africa accounts for three-quarters of the world's platinum output.
Gold posted its biggest one-day gain in two weeks after Merkel voiced support for European Central Bank President Mario Draghi's crisis-fighting strategy. Data showing contracting manufacturing activity in the US mid-Atlantic region and slow housing starts also raised hopes for Federal Reserve stimulus.
Open interest, a liquidity gauge that measures the number of outstanding long and short contracts, fell to a 2012 low for US gold futures on Wednesday, latest exchange data showed. Doubts about central banks' commitment to take aggressive steps to boost their economies have kept gold prices in a trading range in the last four months.
"The open interest in gold is indicating rallies are mainly short-covering now. Also, the upcoming Jackson Hole conference with (Fed Chairman Ben) Bernanke hopefully discussing a stimulus of some kind moved traders," said George Gero, vice president of RBC Capital Markets.
Most Wall Street economists still expect the Federal Reserve to do more to stimulate growth this year, with the majority looking for action as soon as September after an annual meeting of economists and central bankers in Jackson Hole, Wyoming, on Aug. 31.
Spot gold gained 0.8 percent to $1,616.20 an ounce by 2:09 p.m. (1809 GMT).
US COMEX gold futures for December delivery settled up $12.60 at $1,619.20 an ounce, with trading volume about 30 percent below its 30-day average, preliminary Reuters data showed.
Tame US inflation data on Wednesday reassured investors that price pressures would not prevent the Fed from launching more quantitative easing - printing money to buy bonds in a bid to keep interest rates low - if a more negative view of growth emerges.
"My general view is that for the time being, major central banks will let go of the mandate of price stability in favor of spurring growth figures," LGT Capital Management analyst Bayram Dincer said.
PHYSICAL DEMAND SOFT IN 2ND QUARTER
A closely watched report from the World Gold Council showed on Thursday that demand for physical gold from jewelers and investors fell in the second quarter to its lowest level since the first three months of 2010.
Among other precious metals, silver was up 1.5 percent at $28.21 an ounce, while spot platinum was up 3.4 percent at $1,436.49 an ounce. Spot palladium was up 0.7 percent at $587.47 an ounce.
Lonmin, the world's No. 3 platinum miner, said that so far it has lost 15,000 ounces of platinum production due to labor unrest. South African riot police opened fire on striking miners Thursday, killing at least a dozen men in the deadliest episode of a week of union violence.